302 U.S.

34
58 S.Ct. 61
82 L.Ed. 32

BOGARDUS
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 15.
Argued Oct. 18, 1937.
Decided Nov. 8, 1937.

Mr. Wm. D. Whitney, of New York City, for petitioner.

Homer S. Cummings, Attorney General, and Mr. A. F. Prescott, of
Washington, D.C., for respondent.
Mr. Justice SUTHERLAND delivered the opinion of the Court.

The question for decision is whether a sum of money received by petitioner in

January, 1931, was 'compensation' subject to the federal income tax, or a 'gift'
exempt therefrom. The Commissioner held it to be compensation, constituting
part of petitioner's gross income, and declared a deficiency. The Board of Tax
Appeals sustained the determination of the Commissioner; and the court below,
upon review, affirmed the order of the Board. 88 F.(2d) 646.

The decisions of other courts of appeal upon the question under review are
conflicting. Upon the one side, the First Circuit (Walker v. Commissioner, 88
F.(2d) 61, Judge Morton dissenting), the Fourth (Hall v. Commissioner, 89 F.
(2d) 441), and the Fifth (Simpkinson v. Commissioner, 89 F.(2d) 397) lend
definite support to the decision of the court below. Upon the other side, more or
less definitely to the contrary, are to be found the decisions of the Third Circuit
(Jones v. Commissioner, 31 F.(2d) 755; Cunningham v. Commissioner, 67 F.
(2d) 205), the Sixth (Lunsford v. Commissioner, 62 F.(2d) 740), and the Ninth
(Blair v. Rosseter, 33 F.(2d) 286). No useful purpose would be served by
reviewing these decisions; and we pass to a consideration of the case before us.
The facts follow:

The amount ($10,000) received by petitioner was part of a distribution

aggregating over $600,000 made by the Unopco Corporation at the instance of
its stockholders to petitioner and others who had theretofore rendered service as
employees or in some other capacity to the Universal Oil Products Company.
The Universal company was a corporation organized in 1914. In the beginning,
its only asset was an application for a patent for a process for refining
petroleum and manufacturing gasoline. It thereafter acquired other patents,
which it licensed to various producers on a royalty basis. Beginning in 1922, its
business developed increasingly until by 1930 its royalties amounted to about
$9,000,000. In January, 1931, its entire stock was sold to the United Gasoline
Corporation for $25,000,000. Prior to the sale, and in contemplation of it, the
Unopco Corporation had been organized for the purpose of acquiring, and it did
acquire, certain assets of the Universal Company of the value of over
$4,000,000. Up to the time of this acquisition, the Unopco Company had never
engaged in any business activities, and thereafter its only business was the
investment and management of the assets thus acquired.

All of the former stockholders of the Universal Company became stockholders

of the Unopco, with the same proportionate holdings. None of them, after the
sale of the Universal stock, held any stock in the Universal, or in the United
Gasoline Corporation. Under its new ownership, the Universal continued to
carry on the same business, retaining a large part of its assets. A few days after
the sale of the Universal Company's stock, the former stockholders, then
stockholders of the Unopco, held a meeting at which it was proposed that they
show their appreciation of the loyalty and support of some of the employees of
the Universal Company by making them a 'gift or honorarium.' A resolution to
that effect was adopted at a meeting of the board of directors of Unopco on
January 9, 1931, and by the stockholders the following day. By these
resolutions, it was resolved that the sum of $607,500 be appropriated, paid, and
distributed, as a bonus, to 64 former and present employees, attorneys and
experts of Universal Oil Products Company, in recognition of the valuable and
loyal services of said employees, attorneys, and experts to said Universal Oil
Products Company. Payments ranged in amount from $100,000 to $500. Some
of the recipients had been out of the employ of the Universal company for
many years; and one of them was the sister of an employee killed in an
explosion about the year 1919.

At the meeting of the former stockholders of Universal, the former president of

that company, then president of the Unopco Corporation, said that they had
reason to congratulate themselves on their great good fortune in the Universal
Company, which started with nothing and had been built up in a phenomenal
way; that they had profited largely; that during the years when they were

struggling and moving forward they had had the loyal support of a number of
employees, and he thought it would be a nice and generous thing to show their
appreciation by remembering them in the form of a gift or honorarium. All of
the stockholders acquiesced, with the result 'that it was understood that we
would come forward and make these presents or gifts to the employees that
were to be slated for it.' The matter had theretofore never been discussed among
the old stockholders; and this was the first time it had been brought up for
consideration. None of the recipients had ever been employed by Unopco or by
any of the former stockholders of the Universal. The parties stipulated that
neither the Universal Company nor the United 'was under any legal or other
obligation to pay said employees * * * any additional * * * compensation' other
than that which they were paid by the Universal Company;1 and that neither
Unopco nor any of its stockholders, nor any of the stockholders of Universal,
was at any time under any legal or other obligation to pay any of said
employees, attorneys, or experts, including petitioner, any salary,
compensation, or consideration of any kind.
6

It was further stipulated: 'Said payments were not made or intended to be made
by said Unopco Corporation or any of its stockholders as payment or
compensation for any services rendered or to be rendered or for any
consideration given or to be given by any of said employees, attorneys or
experts to said Unopco Corporation or to any of its stockholders.' None of the
three corporations or their stockholders ever made or claimed any deduction for
federal income tax purposes in respect of the payments made to the petitioner
and the others. Payments were charged, in January, 1931, not to expense, but to
surplus account on the books of the Unopco Company.

The distribution was made to petitioner and the other employees, attorneys, and
experts by checks, delivered either personally or by mail; and in each instance
with the accompanying statement that the moneys represented by such checks
were given at the instance of the stockholders of the Unopco Corporation as a
gift and gratuity, and were, therefore, not subject to income tax on the part of
the recipients.

The Board of Tax Appeals concluded that, from a careful consideration of all
the evidence, 'the payments made by Unopco to the petitioners and others were
additional compensation in consideration of services rendered to Universal and
were not tax-free gifts.' This, as we recently have pointed out, is 'a conclusion of
law or at least a determination of a mixed question of law and fact. It is to be
distinguished from the findings of primary, evidentiary, or circumstantial facts.
It is subject to judicial review and, on such review, the court may substitute its
judgment for that of the Board.' Helvering v. Tex-Penn Oil Co., 300 U.S. 481,

491, 57 S.Ct. 569, 573, 574, 81 L.Ed. 755; Helvering v. Rankin, 295 U.S. 123,
131, 55 S.Ct. 732, 736, 79 L.Ed. 1343. If the conclusion of the Board be
regarded as a determination of a mixed question of law and fact, it has, as we
shall presently show, no support in the primary and evidentiary facts. The
ultimate determination, therefore, should be overturned, under the doctrine of
Helvering v. Rankin, supra, as a matter of law.
9

The statutory provisions involved are very plain and direct. Section 22(a) of the
applicable revenue act (Revenue Act 1928, 45 Stat. 791, 797) provides that
'gross income,' among other things, includes 'compensation for personal
service, of whatever kind and in whatever form paid.' 26 U.S.C.A. 22(a) and
note. Subdivision (b)(3), immediately following, provides that 'the value of
property acquired by gift, bequest, devise, or inheritance' shall not be included
in gross income, and shall be exempt from taxation under the income tax title.

10

The court below (88 F.(2d) 646, 647) thought that payments such as are here
involved 'may be at once 'gifts' under section 22, subdivision (b)(3) 26
U.S.C.A. 22(b)(3) and note, and 'compensation for personal service' under
subdivision (a).' Such a view of the statute is inadmissible and confusing. The
statute definitely distinguishes between compensation on the one hand and gifts
on the other hand; the former being taxable and the latter free from taxation.
The two terms are, and were meant to be, mutually exclusive; and a bestowal of
money cannot, under the statute, be both a gift and a payment of compensation.
The court below went on to say that decisions like Old Colony Trust Co. v.
Commissioner Int. Rev., 279 U.S. 716, 49 S.Ct. 499, 73 L.Ed. 918, proved that
payments could be both gifts and compensation for personal services. The most
casual reading of that case shows that it is authority for no such doctrine. There,
an employer had paid the income tax assessed upon the salary of an employee.
The employee had entered upon the discharge of his duties for the year in
question under an express agreement to that effect. Quite evidently the
payment, so agreed upon in advance, was in consideration of services to be
rendered, and in no sense a gift. It was a part of the employee's compensation;
and the court so held. The idea that it could be a gift in any sense was definitely
rejected. We said (at page 730 of 279 U.S., 49 S.Ct. 499, 504, 73 L.Ed. 918):
'Nor can it be argued that the payment of the tax in No. 130 was a gift. The
payment for services, even though entirely voluntary, was nevertheless
compensation within the statute.'

11

If the sum of money under consideration was a gift and not compensation, it is
exempt from taxation and cannot be made taxable by resort to any form of
subclassification. If it be in fact a gift, that is an end of the matter; and inquiry
whether it is a gift of one sort or another is irrelevant. This is necessarily true,

for since all gifts are made nontaxable, there can be no such thing under the
statute as a taxable gift. A claim that it is a gift presents the sole and simple
question whether its designation as such is genuine or fictitious; that is to say,
whether, though called a gift, it is in reality compensation. To determine that
question we turn to the facts, which we have already detailed.
12

From these we learn that the recipients of the bounty here in question never
were employees of the Unopco Company, or of any of its stockholders. The
Universal Company, in whose employ some of the recipients then were, was at
the time in no way connected with the Unopco Company or any of its
stockholders. Some of the recipients had not been in the employ even of the
Universal Company for many years, and one of them never had been an
employee. Neither the Universal Company nor any one else was under any
obligation, legal or otherwise, to pay any of the recipients, including petitioner,
any salary, compensation, or consideration of any kind. Such is the express
stipulation of the parties. And most significant is the further stipulated fact that
the disbursements were not made or intended to be made for any services
rendered or to be rendered or for any consideration given or to be given by any
of said employees, attorneys, or experts to said Unopco Corporation or to any of
its stockholders. If the disbursements had been made by the Universal
Company, or by stockholders of that company still interested in its success and
in the maintenance of the good will and loyalty of its employees, there might be
ground for the inference that they were payments of additional compensation.
Compare Noel v. Parrott (C.C.A.) 15 F.(2d) 669. But such an inference, even
upon one of these suppositions, well might strain the realities in the light of the
foregoing facts. However that may be, the disbursements here were authorized
and the burden borne by persons who were then strangers to the Universal
Company and its employees, under no obligation, legal or otherwise, to that
company or to any of its present or former employees. There is entirely lacking
the constraining force of any moral or legal duty as well as the incentive of
anticipated benefit of any kind beyond the satisfaction which flows from the
performance of a generous act. The intent is shown by the appeal made at the
stockholders' meeting to the effect that it would be a nice and generous thing
for these former stockholders of the Universal to show their appreciation of the
past loyalty of that company's employees by remembering them in the form of a
'gift or honorarium,' and by the common understanding then reached that the
stockholders would make the suggested 'presents or gifts' to these employees.
Quite evidently, none of these stock holders had the slightest notion that a
payment of compensation was to be made.

13

In sum, then, the case comes to this: The stockholders of the Unopco, having at
the time no connection with the Universal Company, but rejoicing in the fact of

their own great good fortune, and mindful of the former loyal support of a
number of employees of the Universal Company, and desiring to remember
them 'in the form of a gift or honorarium,' resolved to make through the
Unopco Company the distribution in question. In doing so, they were moved, as
Judge Swan said in his dissenting opinion below, to an act of 'spontaneous
generosity.' We agree with this dissenting opinion of Judge Swan, and the
dissenting opinion of Judge Morton in Walker v. Commissioner, supra, as
stating the correct view of the matter.
14

The only facts which even seem to militate against this view are: (1) That the
Unopco stockholders had benefited by the former services of the recipients; (2)
that the stockholders at their meeting described the payment as a gift or
'honorarium'; and (3) that the resolutions authorized the payment as a 'bonus * *
* in recognition of the valuable and loyal services' of the employees, etc.

15

1. Because the Unopco stockholders had benefited by the past services of the
recipients, it by no means follows that the distribution in question was not a
gratuity. It nowhere appears in the record that full compensation had not been
made for these services. There would seem to be a natural inference to the
contrary; and the inference is made determinate by the stipulated fact that no
one was under any obligation, legal or otherwise (and this would include a
moral obligation, however slight), 'to pay any additional compensation.' There
is no ground for saying that the benefit received and the compensation then
paid for it were not equivalents.

16

2. It is said that the word 'honorarium' always denotes a compensatory

payment. Without agreeing to this broad generalization, it is enough to say that
the word is not here used by itself, but coupled with the word 'gift' in the phrase
'gift or honorarium.' Presumptively, the user of the phrase must have known
that the word 'gift' did not include a compensatory payment, and it is hardly to
be supposed that he would consciously nullify that word by the immediate use
of another meaning the opposite. The phrase was used in an informal speech at
the stockholders' meeting made by the president of the Unopco Company. The
whole tone of the meeting indicates that the intention was to make gifts in
recognition of, not payments for, former services. The conclusion in which the
stockholders acquiesced was that they would come forward and make these
'presents or gifts' to the employees. In the light of all the circumstances, the
absence of moral or other obligation and of any expectation of future benefit, it
is reasonable to conclude that the word 'honorarium,' if the court below
correctly defined it, was loosely and inaccurately used.

17

3. The resolutions, which employ the word 'bonus,' were adopted to carry into

effect the will of the stockholders expressed at their meeting. What occurred at
that meeting, as we have already said, indicated their clear intention to make
gifts. And since intention must govern, we must consider the word used in the
light of the intention. A similar question was before the Court of Appeals for
the District of Columbia in Levey v. Helvering, 62 App.D.C. 354, 68 F.(2d)
401. There, the corporate resolution characterized the payments to be made to
reimburse certain officers for income taxes paid on salaries as 'gifts.' But the
court held this characterization did not settle the matter. It reviewed the facts
and reached the conclusion that in the light of them what was intended was not
a gift but a bonus, and decided the case in accordance with that view. In other
words, the thing that was decided upon and intended, in that case as in this
case, was misdescribed in the resolutions to carry the decision and intention
into effect. In Rogers v. Hill, 289 U.S. 582, 591, 592, 53 S.Ct. 731, 735, 77
L.Ed. 1385, 88 A.L.R. 744, we held, following the dissenting opinion in the
court below, that a bonus payment having no relation to the value of services
for which it is given is in reality a gift in part. Certainly, where all, the facts and
circumstances in the case, including the express stipulation of the parties,
clearly show the making and the intent to make a gift, it cannot be converted
into a payment for services by inaccurately describing it, in the consummating
resolutions, as a bonus.
18

Some stress is laid on the recital to the effect that the bounty is bestowed in
recognition of past loyal services. But this recital amounts to nothing more than
the acknowledgment of an historic fact as a reason for making the gifts. A gift
is none the less a gift because inspired by gratitude for the past faithful service
of the recipient. Compare Hobart's Adm'r v. Vail, 80 Vt. 152, 66 A. 820.

19

Judgment reversed.

20

Mr. Justice BRANDEIS, Mr. Justice STONE, Mr. Justice CARDOZO, and Mr.
Justice BLACK (dissenting).

21

A payment received as compensation for services is taxable as income, though

made without consideration, and hence for many purposes a gift. Old Colony
Trust Co. v. Commissioner, 279 U.S. 716, 730, 49 S.Ct. 499, 504, 73 L.Ed.
918. To hold, as the prevailing opinion seems to do, that every payment which
in any aspect is a gift is perforce not compensation and hence relieved of any
tax, is to work havoc with the law. A large body of decisions, whose
provenance is Old Colony Trust Co. v. Commissioner, would be annulled by
such a test. See e.g. Weagant v. Bowers (C.C.A.) 57 F.(2d) 679; Fisher v.
Commissioner (C.C.A.) 59 F. (2d) 192; Bass v. Hawley (C.C.A.) 62 F.(2d)
721; United States v. McCormick (C.C.A.) 67 F.(2d) 867; Botchford v.

Commissioner (C.C.A.) 81 F.(2d) 914, 110 A.L.R. 281; Schumacher v. United

States (Ct.Cl.) 55 F.(2d) 1007. Cf. Lucas v. Ox Fibre Brush Co., 281 U.S. 115,
50 S.Ct. 273, 74 L.Ed. 733. Their teaching makes it plain that the categories of
'gift' and 'compensation' are not always mutually exclusive, but at times can
overlap. What controls is not the presence or absence of consideration. What
controls is the intention with which payment, however voluntary, has been
made. Has it been made with the intention that services rendered in the past
shall be requited more completely, though full acquittance has been given? If
so, it bears a tax. Has it been made to show good will, esteem, or kindliness
toward persons who happen to have served, but who are paid without thought
to make requital for the service? If so, it is exempt.
22

We think there was a question of fact whether payment to this petitioner was
made with one intention or the other. A finding either in his favor or against
him would have had a fair basis in the evidence. It was for the triers of the facts
to seek among competing aims or motives the ones that dominated conduct.
Perhaps, if such a function had been ours, we would have drawn the inference
favoring a gift. That is not enough. If there was opportunity for opposing
inferences, the judgment of the Board controls. Elmhurst Cemetery Co. v.
Commissioner, 300 U.S. 37, 57 S.Ct. 324, 81 L.Ed. 491; Helvering v. Tex-Penn
Oil Co., 300 U.S. 481, 57 S.Ct. 569, 81 L.Ed. 755.

The reference to additional compensation paid by the Universal Company

probably refers to a 'bonus,' which was clearly compensation, paid by that
company to its various employees, some 400 in number, in 1930.